One of the questions I hear a lot from potential buyers is, “Should I wait to own a home?”. For first time home buyers in particular, it is easy to get discouraged when reality sets in that the kind of home they dreamed of living in is not a home they can afford. This can be a disheartening process as they must begin to choose what is most important to them and what they can live without. A great REALTOR will be able to help you navigate through this process with alternative options that you may have never considered before as well as give you a realistic picture of the housing market in your area. Remember – Just because you can’t get everything you want doesn’t mean you can’t find a great home that you can enjoy living in that will become a great investment for you.
Some believe that if they can’t find what they are looking for that they will just wait to save up more money to buy something nicer in hopes that the prices will come down. Saving money towards buying a house is a good thing, but there are some things to put into perspective if you are considering that option. The questions to ask yourself would be: “How long am I willing to wait?” and “How much more money would I save during that time?” Historically, housing prices tend to climb slowly and steadily over time, with the exception of the bubble bursting after the over-inflation of prices that occurred in the market frenzy of 2005-2007. We have been recovering from that market correction in the past couple of years, and the Tampa Bay real estate market is back to a healthy steady pace. Prices have been going up over the past year and are expected to continue rising. I would expect them to rise a bit faster than normal due to the low inventory that is currently on the market. Law of supply and demand: lots of buyers + low inventory = higher prices.
That is not to say that eventually prices couldn’t go down a bit if you wait it out long enough, but how long will you have to wait? I read a study recently called, “The High Cost of Waiting to Buy” by economist, Jonathan Smoke. He compared the cost of buying with a 20% down payment to renting if renters invested the difference between their rental payment and a mortgage payment and earned a 5% annual return. He found that the penalty for waiting 1 year in the Tampa Bay area would average in at $20,172 and the penalty for waiting 3 years would cost $58,121. In essence, this means that you would need to save significantly more than $20,172 in a year in order to afford more of a home than you can right now. You would need to save money at a faster rate than the housing prices are increasing.
Furthermore, interest rates are very low currently, making home ownership even more affordable. It is inevitable – interest rates are expected to go up. Unlike home prices, however, interest rates can increase literally overnight and can have a major impact on the affordability of a home. For example, if the interest rates were to increase by just 1%, that would equate to about a 10% increase in the price of the home. This means that if the interest rates were to increase by just 1%, and you were previously able to afford a $150,000 home, you could now only afford a $135,000 home because your payments would be higher. Even if the higher interest rates caused the housing prices to go down slightly, they would not likely go down enough to make up for the interest rate’s effect on affordability. We would need to see more than a 10% drop in the home prices before you would benefit.
If you truly want to become a home owner and stop paying someone else’s mortgage payments as a renter, there couldn’t be a better time to buy than now. There are also first time home buyer programs that provide significant down payment assistance for those who qualify. If you would like to connect with a preferred lender to learn more, please contact “The Agent Jen” for more information!
Happy Home Buying!